Compromise emerging on Galileo sat-nav funding

LONDON  Europe's fledgling satellite navigation project Galileo cleared a major hurdle in its long-running attempts to sort out future funding as EU member states agreed on a compromise deal on the financing of the project.

The deal, reached in Brussels late Friday (Nov .23) means Euros 2.4bn ($3.6bn) will be diverted from unused farm subsidies from this year's budget and rejigging research and industrial spending.

The decision, part of a broader deal on the EU's overall budget for 2008, marks an important step for the satellite navigation system after years of political and financial wrangling.

The European parliament must now approve the spending plan and national transport ministers need to agree on a legal basis for Galileo before the deal becomes a reality.

Germany was a staunch critic of the plan to use unspent EU budget funds to pay for the project. Instead, it had suggested tapping the European Space Agency, which is not an EU institution, to top up Galileo.

The U.K. government also strongly questioned the business case for the project, but nevertheless backed Friday's budget agreement.

Germany originally voted against the plan, a move that insiders said was prompted by concerns that it would bring extra costs and create a precedent of reopening long-term budget agreements.

The German government earlier welcomed concessions by the European Commission regarding tenders for Galileo contracts. The country's negotiators said compromises addressed its concerns that German companies might be excluded from working on the project.

Under the new proposals, no one company would be allowed to act as prime contractor on more than two of the six segments of work that will now be offered to build the system.

Germany's resistance on the funding issue was believed to be linked to concerns that the original tendering procedure would have resulted in Thales, the French satellite maker, dominating the entire project.

Under the commission's revised tender rules, EADS Astrium, a subsidiary of the Franco-German EADS, has a bigger chance of securing one or two segments. The tendering rules dictate that prime contractors must sub-contract 40 per cent of the segment.

A spokesman for Jacques Barrot, the EC's transport commissioner, said: "The goal is to strike the right balance between open and transparent competition, and on the other hand the need to guarantee that the whole of the European industry can take part in the construction of Galileo."

Galileo was conceived seven years ago as a rival to the U.S. operated Global Positioning System and touted as a key high-technology venture for the EU. But it stalled earlier this year after a group of eight companies charged with developing the system disagreed on how to share out work and failed to make headway.

A large order for satellites needs to be ordered quickly if the project is to meet rescheduled targets for an initial deployment of Galileo by 2011-2012 and a full scale version using the planned 30 satellites by 2013.